Exam 9: Nontariff Barriers to Imports

The figure given below shows the domestic demand (D_d) and supply (S_d) curves of mopeds in a country before an import quota is imposed by the government. After the imposition of quota, the total available supply curve becomes S_d + Q_Q. If the government auctions the quota licenses, how much will it collect as revenue?

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Question 1

Correct Answer:

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If there is only one domestic automobile manufacturing firm in a small country, will there be a difference in terms of national economic well-being between using a tariff and using a quota to protect the firm? If so, what is the difference? Clearly explain your answer.

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Question 2

Correct Answer:

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If there is only one automobile manufacturing firm in the domestic economy, it would mean that this firm may have monopoly power in the domestic automobile industry. With free trade, the monopolist will lose its monopoly power completely. Facing competition from foreign producers, the monopolist will turn into a price taker that charges the international price. Now, if a tariff is imposed, the domestic producer will be able to charge a price equal to the world price plus the amount of the tariff, but the producer will still remain a price taker, because imports can still increase without limit at this price. If, instead, an import quota is used, there is no import competition at the margin, once the quota is filled. The domestic producer then will be able to determine the domestic price of the product by deciding how much to produce. A profit maximizing monopolist will decide on its production quantity in such a way that the marginal revenue from the last unit produced equals the marginal cost of production of the last unit. With a quota, the monopolist will be able to charge a higher price by restricting production, knowing that domestic consumers cannot purchase imported automobiles beyond the quota quantity. Because the domestic price diverges more from the world price, the quota results in a larger inefficiency-a large deadweight loss.

Unlike a tariff, a quota does not cause either a production effect or a consumption effect.

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(True/False)

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Question 3

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False

The World Trade Organization has rules that try to limit the use of tariffs but not the use of NTBs.

(True/False)

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Question 4

Unlike a tariff, quotas do not allow domestic monopolists to assert their monopoly pricing powers.

(True/False)

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Question 5

Suppose a small country sets all of its tariffs at 40% which causes a reduction in imports by 20%. If the total imports affected by the tariffs are 40% of GDP, the net national loss from the tariffs as a percentage of GDP is:

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Question 6

A small country imports T-shirts. With free trade at a world price of $10, domestic production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The country's government now decides to impose a quota to limit T-shirt imports to 20 million per year. With the import quota in place, the domestic price rises to $12 per T-shirt and domestic production rises to 15 million T-shirts per year. The quota on T-shirts causes domestic producers to:

(Multiple Choice)

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Question 7

When an importing country compels the foreign exporting country to agree "voluntarily" to restrict its exports to this country, the exporting firms in the foreign country suffer a net welfare loss.

(True/False)

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Question 8

While a large country can either be better off or worse off due to the imposition of a tariff, the same country will necessarily be worse off as a result of imposing an equivalent import quota.

(True/False)

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Question 9

The figure given below shows the market for MP3 players in a small country. D_d and S_d are the domestic demand and domestic supply curves of the MP3 players before the imposition of the quota. (S_d + Q_Q) is the total available domestic supply curve after the quota has been imposed. The quota on MP3 players will cause domestic consumers to:

(Multiple Choice)

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Question 10

A small country imports T-shirts. With free trade at a world price of $10, domestic production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The country's government now decides to impose a quota to limit T-shirt imports to 20 million per year. With the import quota in place, the domestic price rises to $12 per T-shirt and domestic production rises to 15 million T-shirts per year. If the government auctions the import licenses, the national well-being will _ by _.

(Multiple Choice)

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Question 11

The figure given below shows the market for MP3 players in a small country. D_d and S_d are the domestic demand and domestic supply curves of the MP3 players before the imposition of the quota. (S_d + Q_Q) is the total available domestic supply curve after the quota has been imposed. If the government auctions the import licenses, the quota on MP3 players will result in a(n) _ in the national well-being by_.

(Multiple Choice)

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Question 12

Restricting imports into a small country by the government:

(Multiple Choice)

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Question 13

Imposition of trade barriers by one country can cause other countries to retaliate, and may lead to a trade war in which all countries raise high import barriers.

(True/False)

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Question 14

The VER is not only a politically attractive way of offering protection to an import-competing industry, but is also economically much less inefficient than other trade barriers.

(True/False)

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Question 15

A small country imports T-shirts. With free trade at a world price of $10, domestic production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The country's government now decides to impose a quota to limit T-shirt imports to 20 million per year. With the import quota in place, the domestic price rises to $12 per T-shirt and domestic production rises to 15 million T-shirts per year. How much would the importing nation lose if the government used VER instead of import quota?

(Multiple Choice)

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Question 16

The general formula used for calculating the net national loss from a trade barrier as a percentage of GDP may fail to account for:

(Multiple Choice)

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Question 17

A domestic monopoly producing a close substitute of an imported product would prefer to be protected by a quota than a tariff that results in the same amount of imports because:

(Multiple Choice)

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Question 18

The figure given below shows the market for MP3 players in a small country. D_d and S_d are the domestic demand and domestic supply curves of the MP3 players before the imposition of the quota. (S_d + Q_Q) is the total available domestic supply curve after the quota has been imposed. Referring to the figure, if instead of using a quota to limit imports they were limited by a voluntary export restraint (VER), the loss to the nation would be:

(Multiple Choice)

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Question 19

In which of the following cases does an import quota result in a higher welfare loss than a tariff?

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Question 20

Showing 1 - 20 of 60

If there is only one domestic automobile manufacturing firm in a small country, will there be a difference in terms of national economic well-being between using a tariff and using a quota to protect the firm? If so, what is the difference? Clearly explain your answer.

Unlike a tariff, a quota does not cause either a production effect or a consumption effect.

The World Trade Organization has rules that try to limit the use of tariffs but not the use of NTBs.

Unlike a tariff, quotas do not allow domestic monopolists to assert their monopoly pricing powers.

Suppose a small country sets all of its tariffs at 40% which causes a reduction in imports by 20%. If the total imports affected by the tariffs are 40% of GDP, the net national loss from the tariffs as a percentage of GDP is:

When an importing country compels the foreign exporting country to agree "voluntarily" to restrict its exports to this country, the exporting firms in the foreign country suffer a net welfare loss.

While a large country can either be better off or worse off due to the imposition of a tariff, the same country will necessarily be worse off as a result of imposing an equivalent import quota.

Restricting imports into a small country by the government:

Imposition of trade barriers by one country can cause other countries to retaliate, and may lead to a trade war in which all countries raise high import barriers.

The VER is not only a politically attractive way of offering protection to an import-competing industry, but is also economically much less inefficient than other trade barriers.

The general formula used for calculating the net national loss from a trade barrier as a percentage of GDP may fail to account for:

A domestic monopoly producing a close substitute of an imported product would prefer to be protected by a quota than a tariff that results in the same amount of imports because:

In which of the following cases does an import quota result in a higher welfare loss than a tariff?

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

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